Frank A. DeLia, D.O., DAB CR465 (1997)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of: Frank A. DeLia, D.O., Petitioner,
- v. -
The Inspector General.

Date: March 4, 1997

Docket No. C-96-387
Decision No. CR465

DECISION

I find that the Inspector General (I.G.) is authorized, pursuant to section 1128(b)(1) of the
Social Security Act (Act), to exclude Petitioner, Frank A. DeLia, D.O. However, I find that
the five-year exclusion the I.G. imposed is not reasonable. I modify the exclusion to a term
of three years.

I. Background

On July 19, 1996, the I.G. notified Petitioner that he was being excluded from participating
in Medicare and State health care programs, including Medicaid, for a period of 10 years.
The I.G. asserted that she was authorized to exclude Petitioner pursuant to section
1128(b)(1) of the Act. The I.G. based the length of the exclusion on the presence of alleged
aggravating factors. On October 25, 1996, the I.G. advised Petitioner that she was
modifying the exclusion to a period of five years. The I.G. based her determination to
modify the exclusion on the presence of a mitigating factor of which the I.G. had not
previously been aware.

Petitioner requested a hearing and the case was assigned to me for a hearing and a decision.
The parties agreed that the case could be heard and decided based on written submissions.
The parties each submitted proposed exhibits, briefs and reply briefs. 1/ Petitioner
requested oral argument. On February 20, 1997, I conducted oral argument, by telephone.
2/ I base my decision in this case on the law, the evidence, and the parties' arguments.

II. Issues, findings of fact and conclusions of law

The issues in this case are whether: (1) the I.G. is authorized to exclude Petitioner,
pursuant to section 1128(b)(1) of the Act; and (2) the five-year exclusion that the I.G.
imposed is reasonable. I make the following findings of fact and conclusions of law
(Findings) to support my decision that the I.G. is authorized to exclude Petitioner and that
the exclusion should be modified to a term of three years. I discuss each of these Findings
in detail, below.

1. Petitioner is a physician.

2. On August 12, 1993, a superseding information was filed against Petitioner in
the United States District Court for the Eastern District of Pennsylvania.

3. Petitioner was charged with conspiring with others, from about 1987 to about
1991, to devise a scheme and artifice to defraud and obtain money by means of
knowing and intentional false and fraudulent pretenses, representations and
promises.

4. The superseding information charged that the object of Petitioner's scheme
was to obtain money from insurance companies by submitting false and fraudulent
medical bills to inflate the value of personal injury claims against insurance
companies and their insureds.

5. Petitioner was charged with directing his staff to prepare false and fraudulent
bills and reports describing fictitious medical treatments that Petitioner and his staff
had purportedly provided to accident patients. Petitioner was charged additionally
with fabricating false and fraudulent progress notes describing the progress of
recovery of his accident patients.

6. The superseding information charged Petitioner with committing several
counts of mail fraud, in order to effectuate his criminal scheme.

7. On August 13, 1993, Petitioner entered into a plea agreement with the United
States government. Petitioner agreed to plead guilty to five counts of mail fraud
arising from his scheme to defraud insurance companies.

8. In his plea agreement, Petitioner admitted that the loss and attempted loss to
insurers which were attributable to him was between $350,000 and $500,000.

9. On October 23, 1995, a criminal judgment was imposed against Petitioner in
the United States District Court for the Eastern District of Pennsylvania. Petitioner
was found guilty of counts 1 - 4 and 8 of the superseding information.

10. Petitioner was sentenced to a term of incarceration of 10 months.

11. Petitioner was ordered to pay restitution in the amount of $120,000.

12. Beginning in December 1991, Petitioner provided substantial cooperation to
prosecuting authorities.

13. Petitioner's cooperation, which he gave at considerable personal risk, led to
the conviction of numerous other individuals.

14. Pursuant to section 1128(b)(1) of the Act, the I.G. may exclude an individual
who has been convicted under federal law, in connection with the delivery of a
health care item or service or with respect to any act or omission in a program
operated by or financed in whole or in part by any federal, State, or local
government agency, of a criminal offense relating to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial misconduct.

15. A conviction for fraud may be the basis for an exclusion under section
1128(b)(1) of the Act, even where the fraud was not directed against a program that
is operated by or financed by a federal, State or local government agency.

16. An exclusion imposed under section 1128(b)(1) of the act shall be for a
period of three years, except that the exclusion may be for more than three years if
aggravating factors establish a basis for a lengthier exclusion, or for less than three
years if mitigating factors establish a basis for a shorter exclusion.

17. The I.G. proved that Petitioner was convicted of a criminal offense within
the meaning of section 1128(b)(1) of the Act. Therefore, the I.G. is authorized to
exclude Petitioner.

18. The I.G. proved the presence of an aggravating factor, in that the acts
resulting in Petitioner's conviction, or similar acts, resulted in financial losses to
entities exceeding $1,500 .

19. The I.G. proved the presence of an aggravating factor, in that Petitioner
committed the Acts which resulted in his conviction, or similar acts, over a period of
more than one year.

20. The I.G. proved the presence of an aggravating factor, in that Petitioner was
sentenced to a period of incarceration for his crimes.

21. Petitioner proved the presence of a mitigating factor, in that Petitioner's
cooperation with prosecuting officials resulted in the convictions of other
individuals.

22. In light of the evidence which is relevant to aggravating and mitigating
factors, a five-year exclusion is not reasonable.

23. A three-year exclusion is reasonable in this case.

III. Discussion

A. The Facts (Findings 1 - 13)

Petitioner is a physician. I.G. Ex. 3 at 1. On August 12, 1993, in a superseding
information, the United States Attorney for the Eastern District of Pennsylvania charged
Petitioner with engaging in a criminal scheme and conspiracy to defraud insurance
companies. I.G. Ex. 3. The superseding information was consistent with a plea agreement
that Petitioner entered into with the United States Attorney on August 13, 1993. I.G. Ex. 2.
On October 23, 1995, Petitioner pleaded guilty to counts 1 - 4 and 8 of the superseding
information. I.G. Ex. 1 at 1.

Petitioner pled guilty to a scheme and conspiracy that began in or about 1987 and continued
until in or about 1991. I.G. Ex. 3 at 1. Petitioner admitted to joining with others to devise
a scheme to fraudulently obtain money from insurance companies. Id. at 2. Petitioner
admitted to implementing and furthering his scheme by directing his staff to prepare false
and fraudulent bills and reports describing fictitious medical treatments that he and his staff
had purportedly provided to patients of Petitioner who allegedly had been involved in
accidents. Id. Petitioner admitted that he had furthered the scheme by fabricating false and
fraudulent progress notes describing the progress of recovery of his patients. Id. Petitioner
admitted also that, on specified occasions, he mailed to insurance companies and others
documents, including claims for services, which he had prepared and submitted in
furtherance of the scheme. Id. at 2 - 6, 10. Petitioner admitted that the loss or attempted
loss to others which was attributable to his scheme was between $350,000 and $500,000.
I.G. Ex. 2 at 10.

Petitioner's sentence for his crimes included a period of incarceration of 10 months. I.G.
Ex. 1 at 2. The sentence included also restitution in the amount of $120,000. Id. at 4.

The sentence that was imposed on Petitioner reflected the fact that, beginning in December
1991, Petitioner provided substantial cooperation to prosecutors, which led to the
conviction of other individuals. That cooperation was extraordinary. In a sentencing
memorandum, the United States Attorney advised the United States District Court judge
who sentenced Petitioner that:

The sheer volume and extent of . . . [Petitioner's] record of cooperation,
extending as it does from the time the postal inspectors first approached him
in December of 1991, and continuing through to the present, almost defies
description . . . [Petitioner] recorded a total of approximately forty fellow
doctors, patients, or attorneys at the behest of law enforcement . . .
[Petitioner] testified before investigating grand juries three times; gave trial
testimony twice, against a total of five defendants; and perhaps most
importantly, was the pivotal force which resulted in twenty-five guilty pleas,
with additional ones sure to follow.

I.G. Ex. 4 at 2. The United States Attorney observed that the quantum of cooperation
provided by Petitioner did not tell the full story of the extent to which he had cooperated.
Not only was the amount of cooperation provided by Petitioner exceptional, but so were the
circumstances of that cooperation. Id. at 2 - 3. Petitioner had, in most instances, served as
a willing and committed participant in hastily scheduled recording sessions. Id. Petitioner
routinely placed himself in compromising circumstances, including an investigation in which
another witness was murdered. Id. The United States Attorney concluded that, but for the
cooperation that Petitioner had provided, the government would not have been able to
prosecute successfully the majority of cases which involved evidence provided by Petitioner.
Id. at 3.

Petitioner's cooperation has continued to enable the government to prosecute and convict
other individuals. In the period after the United States Attorney submitted his sentencing
memorandum, Petitioner's cooperation resulted in charges and/or convictions against eight
additional individuals. P. Ex. 1.

B. The applicable law (Findings 14 - 16)

1. The exclusion authority conferred under section 1128(b)(1)
(Findings 14 - 15)

The I.G. excluded Petitioner pursuant to section 1128(b)(1) of the Act. This section
authorizes the I.G. to exclude an individual:

that has been convicted, under Federal or State law, in connection with
the delivery of a health care item or service or with respect to any act or
omission in a program operated by or financed in whole or in part by any
Federal, State, or local government agency, of a criminal offense relating to
fraud, theft, embezzlement, breach of fiduciary responsibility, or other
financial misconduct.

The section states three elements that are prerequisites to the I.G. having authority to
exclude an individual. First, the individual must be convicted of a criminal offense. Second,
that conviction must be in connection with the delivery of a health care item or service or
with respect to any act or omission in a program operated by or financed in whole or in part
by any federal, State, or local government agency. Third, the conviction must be of an
offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other
financial misconduct.

Petitioner argues that the second of these three elements states the prerequisite that the
conviction must, in some respect, relate to a health care service that is financed by a federal,
State, or local government agency. I do not agree with this asserted interpretation of
section 1128(b)(1). Section 1128(b)(1) does not derive exclusion authority only from those
crimes which are committed against health care programs that are financed by a
government. This section authorizes exclusions of individuals who are convicted either of a
crime that is perpetrated in connection with the delivery of a health care item or service or
that is perpetrated with respect to any act or omission in a program operated or financed by
a federal, State, or local government agency. Thus, a crime that is committed in connection
with a health care item or service is a basis for an exclusion under section 1128(b)(1),
whether or not the object of that crime is a government-funded health care program. A
crime that is committed against a government-funded program is a basis for an exclusion
under section 1128(b)(1), whether or not the crime involves health care, and whether or not
the program at issue funds health care.

My reading of section 1128(b)(1) comports with the section's plain meaning. Moreover, it
is consistent with the remainder of section 1128. Section 1128(a)(1) mandates exclusion of
an individual who is convicted of a criminal offense related to the delivery of an item or
service under Medicare or a State health care program. If the exclusion authority conferred
by section 1128(b)(1) were limited only to cases involving convictions of offenses related to
government-run health care programs, then that section would, in large measure, duplicate
the exclusion authority conferred under section 1128(a)(1). In that event, section
1128(b)(1) would appear largely to be pointless.

2. The standards for determining the length of exclusions imposed
pursuant to section 1128(b)(1) (Finding 16)

Section 1128(b)(1) is a remedial enactment, as is the case with all of the other parts of
section 1128 of the Act. The statutory purpose of the section is not to punish miscreants,
but to protect federally-funded health care programs, and beneficiaries and recipients of
those programs, from individuals who are untrustworthy. Therefore, in order to be
reasonable, an exclusion imposed under section 1128(b)(1) must comport with the Act's
remedial purpose.

The Secretary of the United States Department of Health and Human Services (Secretary)
has published regulations which establish the standards which must be employed to impose
exclusions under each of the parts of section 1128. 42 C.F.R. Part 1001. These regulations
operate, in effect, as the Secretary's rules of evidence which define and limit the evidence
which may be considered in deciding whether an exclusion is reasonable. The regulation
which establishes the criteria for evaluating whether an exclusion imposed under section
1128(b)(1) is reasonable is at 42 C.F.R. § 1001.201.

The regulation provides that, in the absence of aggravating or mitigating factors, an
exclusion imposed pursuant to section 1128(b)(1) shall be for a period of three years. 42
C.F.R. § 1001.201(b)(1). An exclusion may be for a period of more than three years, if
there exist aggravating factors in a case that are not offset by, or which outweigh, mitigating
factors. Id.; 42 C.F.R. § 1001.201(b)(2). An exclusion may be for a period of less than
three years, if there exist mitigating factors which are not offset by, or which outweigh,
aggravating factors. 42 C.F.R. §§ 1001.201(b)(1); (b)(3).

Although the regulation establishes the rules of evidence which govern whether an exclusion
imposed under section 1128(b)(1) is reasonable, it does not assign any specific weight to
those factors. The Secretary has given discretion to the adjudicator to weigh, on a case-by-
case basis, the evidence which relates to aggravating and/or mitigating factors, and to
decide, based on that evidence, whether an exclusion is reasonable.

C. Evaluation of the evidence (Findings 17 - 23)

1. The I.G.'s authority to exclude Petitioner (Finding 17)

The unrefuted evidence in this case is that Petitioner was convicted of crimes that were
perpetrated in connection with health care items or services. Consequently, Petitioner was
convicted of a criminal offense within the meaning of section 1128(b)(1), and the I.G. is
authorized to exclude him.

The necessary central element of Petitioner's criminal scheme was health care items or
services that Petitioner provided to alleged accident victims. These services were the basis
for falsified insurance claims and for additional criminal activity to support Petitioner's
fraud. Thus, Petitioner's crimes were committed "in connection with" health care items or
services and involved fraud, embezzlement, or other financial misconduct. That is all that is
necessary to establish authority to exclude Petitioner under section 1128(b)(1). As I find
above, it is not a necessary element of that authority to show that the crimes committed by
Petitioner were in relation to government-funded health care programs.

2. Whether the five-year exclusion is reasonable (Findings 18 - 23)

The I.G. originally excluded Petitioner for a period of 10 years. Subsequently, she modified
the exclusion to a period of five years. This reflected the I.G.'s review of evidence
pertaining to the cooperation that Petitioner provided to prosecuting authorities. Based on
that evidence, the I.G. determined that Petitioner had established the presence of a
mitigating factor. The I.G. determined, however, that this mitigating factor did not offset
evidence which established aggravating factors, to the extent that a reduction in the
exclusion below a term of five years was warranted.

The I.G. proved the presence of three aggravating factors. These are as follows:

The acts which resulted in Petitioner's conviction, or similar acts, caused losses
of $1,500 or more to insurers. 42 C.F.R. § 1001.201(b)(2) (i). It is not possible to
decide precisely how much loss Petitioner's criminal acts caused insurers to suffer.
In any event, that loss was substantial. In agreeing to plead guilty, Petitioner
acknowledged that the amount of loss or "attempted loss" that he caused was in a
range between $350,000 and $500,000. I.G. Ex. 2 at 10. This admission does not
differentiate between the losses that Petitioner caused and the losses he attempted to
cause. Perhaps a better measure of the actual losses caused by Petitioner is his
sentence to pay restitution in the amount of $120,000. I.G. Ex. 1 at 4.

The acts which resulted in Petitioner's conviction, or similar acts, were
committed by Petitioner over a period of more than one year. 42 C.F.R. §
1001.201(b)(2)(ii). Petitioner's criminal acts extended over a period of more than
three years. His criminal scheme began in or about 1987 and ended in or about
1991. I.G. Ex. 3 at 1.

Petitioner was sentenced to a period of incarceration as punishment for his
crimes. 42 C.F.R. § 1001.201(b)(iv). He was sentenced to a term of 10 months'
imprisonment. I.G. Ex. 1 at 2.

On first examination, the evidence as to aggravating factors shows Petitioner to be a highly
untrustworthy individual. He planned and executed a complex, elaborate, and highly
detailed criminal scheme, which defrauded insurers of large sums of money. He enlisted the
cooperation of others to implement his scheme. Petitioner executed his scheme over a
lengthy period of time.

In key respects, however, the evidence as to aggravating factors is not quite so damaging as
it appears to be. While it is true that Petitioner executed his criminal scheme over a long
period of time, it is true also that there is no evidence that Petitioner has engaged in criminal
activity for many years. The evidence which shows that Petitioner was extraordinarily
untrustworthy as of 1991, is diluted in some respects by the many intervening years in which
Petitioner has not been shown to have engaged in any unlawful activity. The last illegal act
which may be attributed to Petitioner occurred in 1991, approximately six years ago. I
would place a great deal more weight on the evidence pertaining to aggravation, had it
related to events which occurred more recently than in 1991. Moreover, while it is true that
Petitioner was incarcerated, his sentence reflects the extensive cooperation that he provided
to prosecuting officials. It is much shorter than it would have been, had Petitioner not
provided that cooperation.

Petitioner proved the presence of a mitigating factor. His cooperation with prosecuting
officials led to the conviction of other individuals. 42 C.F.R. § 1001.201(b)(3)(iii)(A). The
evidence concerning the amount of cooperation that Petitioner provided, and the
circumstances under which he provided that cooperation, is evidence that Petitioner went to
extraordinary lengths to atone for his crimes. The large number of individuals whose
convictions are due to Petitioner's cooperation is impressive. Equally impressive is the
number of investigations that Petitioner participated in and the time frame of about four
years during which he cooperated. But, impressive as this evidence may be, it is not so
impressive as is the fact that Petitioner cooperated, despite substantial potential risk to his
personal safety. I.G. Ex. 4 at 2 - 3.

The five-year exclusion that the I.G. imposed is not reasonable when it is considered in light
of the evidence pertaining to the aggravating factors and the mitigating factor. The I.G.
placed too much weight on the evidence which established the presence of aggravating
factors, and the I.G. did not give adequate weight to evidence which established the
presence of a mitigating factor. In light of that, I modify the exclusion to a term of three
years.

As I find above, the impact of the evidence pertaining to aggravating factors is diminished
substantially by the fact that all of Petitioner's criminal activity occurred in the remote past.
Even under an exclusion that is modified to a term of three years, Petitioner will not be
eligible for reinstatement until 1999, about eight years from the most recent evidence of
misconduct. Eight years is ample time to assure that Petitioner has become trustworthy.

Furthermore, the evidence of mitigation that exists in this case is extraordinary proof of
Petitioner's efforts to regain a trustworthy status. My decision to modify the exclusion to a
term of three years is based, in large measure, on the evidence of mitigation, which I
conclude outweighs the evidence of aggravation.

Petitioner urges that I modify the exclusion to a term of six months. He asserts that the
evidence of mitigation is such strong proof that Petitioner is trustworthy that a modification
to a six-month exclusion is reasonable.

I do not agree with Petitioner's argument that his exclusion should be modified to a term of
six months. A six-month exclusion would mean, effectively, that Petitioner now would be
eligible to apply for reinstatement. I am not satisfied that Petitioner is so trustworthy that
immediate consideration of reinstatement is appropriate in this case. Although the evidence
of mitigation goes a long way to negate the evidence relating to aggravation, it does not
completely obliterate the fact that, at one time, Petitioner was a highly untrustworthy
individual who engaged in a concerted criminal enterprise. A three-year exclusion provides
a reasonable safeguard to federally-funded programs, beneficiaries, and recipients, given the
facts of this case.

IV. Conclusion

I conclude that the I.G. is authorized to exclude Petitioner pursuant to section 1128(b)(1) of
the Act. I conclude that the five-year exclusion imposed by the I.G. is unreasonable. I
modify the exclusion to a term of three years.

______________________
Steven T. Kessel
Administrative Law Judge

* * * Footnotes * * *

1. The I.G. submitted five proposed exhibits (I.G. Ex. 1 - 5). Petitioner
submitted one proposed exhibit (P. Ex. 1). Neither the I.G. nor Petitioner objected to my
receiving into evidence any of the proposed exhibits. I hereby receive into evidence I.G. Ex.
1 - 5 and P. Ex. 1.
2. Neither party requested that a transcript be made of the oral argument. In
light of that, I did not order that the oral argument be transcribed.

(..continued)